Program Budgeting: Say “YES” to pie charts and “NO” to line items

Are you frustrated that your fixed costs and employee salary packages represent the bulk of your line item budget? Can you imagine your annual budget development process devoid of drama, line-by-line contentious arguments, and anxiety about which line items to decrease or eliminate? Because this scenario is so prevalent and fraught with negativity, I want to share this information with you.

When congregants are asked to make a financial commitment to the annual operating budget, most want to know where their money is going and how it will make a difference. At the same time, they don’t want to be overwhelmed with too much financial detail. The best approach is to develop a program budget and to communicate it through pie charts.

Program budgeting is a method designed to clarify and simplify the operating budget. A typical congregational program budget divides annual income into four or five sources and annual expenses into four or five broad categories. Pie charts show the proportion of income from each source and the proportion of expenses in each category.

A program budget does not replace a line-item budget. It serves as an introduction to the proposed budget. The program budget proposal is shared with congregants when they are asked to make their financial commitment. The pie charts make it easy to see where financial resources come from and how the congregation chooses to allocate them, including the relative significance of various programs and ministries. These priorities may be altered if the congregation chooses. After the annual budget drive, the pie charts are converted into a line-item budget and presented to the congregation for adoption.
In a program budget, sources of income typically include annual financial commitments, rental income, program fees, and donations. A healthy annual income distribution requires that at least 80 percent of income is derived from annual financial commitments.

A healthy congregation does not use money from the endowment fund to balance an annual operating budget. As explained in Chapter 8 of Beyond Fundraising: A Complete Guide to Congregational Stewardship, endowment fund income is typically designated for capital projects and “rainy day” surprises. Nor should the congregation rely on income from service auctions, church fairs, yard sales, and similar events. Such events offer wonderful opportunities to build community, they are not cost-effective ways to balance the operating budget. I do not suggest elinating such events, instead I’m suggested that you give these contributions to a local or global community ministry—a worthwhile project or cause focused beyond the walls of the congregation. A sample program budget income pie chart is found below and on page 50 of Beyond Fundraising.

For expenses, consider the following categories: worship and music, lifespan religious education, community within, outreach (or global ministries), and denominational connection. While many Unitarian Universalist congregations allocate up to 10 percent of their operating budget to outreach, many nondenominational evangelical congregations devote 20 percent of their income—as well as many hours of sweat equity—to global ministry programs. A sample program budget expense pie chart is found below and on page 51 of Beyond Fundraising.

Many congregational finance leaders resist program budgeting, saying that congregants want the level of detail provided by a line-item budget. These leaders often believe that the more information people are given, the more money they will commit. On the contrary, line-item budgets confuse many people. At best, most congregants find them too tedious to explore in detail. Many fundraising consultants believe that there is no direct correlation between the amount of detailed financial information provided and the motivation to make a larger financial commitment. Remember: People give to other people, to programs, to ministries, and to worthy causes. People do not give to line item budgets.

So, at the start of your annual budget drive, use pie charts to depict projected income and expenses. Convert the pie chart to line items after you know how much operating income will be available from the financial commitments of your congregants.

Comments

I originally saw this article via a facebook post and had commented on the person’s link. Then someone else commented that I should comment to the blog itself…..

We used pie charts like this at the church I formerly served with general success. I personally struggle with this approach because it invites comparison between program areas – as if the amount of money spent in each area is directly correlated with its value to the congregation. In the absence of benchmarks and best practices information, it means little to me that the RE slice of the pie is X percent, the Social Justice slice is Y percent, and so on. If the size of the slice is tied to the perceived importance of the program, that becomes a disincentive to operate one’s program efficiently!

Jan Gartner, Director of Religious Education
First Universalist Church of Rochester, NY

Thanks for this great posting. It would be great if more congregations learned the high value in creating understandable program budgets for their members. Here are the categories that I prefer:
• UU Connections (District and UUA share, etc.)
• Outreach to others (social justice, welcoming, greater community marketing and activities)
• Faith Development (RE, adult spiritual development, covenant groups)
• Worship & Arts (music, Sunday service, etc)
• Creating Community (membership, fellowship, events)

You raise a very good point; there is sometimes not a direct relationship between the importance of a program and the amount of money spent. When used most successfully, pie charts are nestled underneath a congregational vision and mission, with very clear goals and activities to help measure the success of each program.

I’ve heard and learned enough about program budgets to be convinced that these are a better tool (or an important supplement) for showing the congregation where the money is going. What I haven’t been able to find so far is any guidance on how to allocate line items to programs. Some are easy — but what about things like the building, or advertising/PR expenses? Is the minister allocated solely to Worship, or is some of that staff expense allocated elsewhere, and if so, how should the allocation be determined? I developed a pie chart for our recent pre-canvass presentation, and I wouldn’t want to have to defend some of my allocations against questioning. Is there any guidance available on how to allocate line-item expenses to segments of a program budget? BTW, I very much like some of the categories in earlier posts here, and will draw on them the next time around.

I really want to like Program Budgets — but when they were (briefly) introduced in our Congregation several years ago it was a thinly veiled attempt to disguise the cost of staff positions. The congregation reacted very negatively. I’m a huge believer in transparency. I think it matters whether this is done with thoughtfulness and honesty or is an attempt to “spin” the data.

On the other hand, I’ve always found our congregation supportive when leadership openly and honestly explains the issue. Having been on both sides of that equation I know it can take a lot of time to truly include the congregation, but it is essential to the mutual respect of covenental community.

The referenced pages in Wayne Clark’s Beyond Fundraising refer to Jerald King’s Mission-Based Budgeting as an important source for learning about program budgeting, and state that it is available through the UUA bookstore. Searching there turns up nothing, Ditto on Google and Amazon. The book may have been self-published. Does anyone here know anything about how to get it?